The stock market is primarily a study in crowd psychology, and crowds are very emotional and not very logical. The biggest mistake investors make is thinking that a crowd of investors is going to think and act like a single individual. After all, it is possible to study and gain some insight into the behavior of an individual.

If investing were about predicting the behavior of one person, it would be much easier. We could figure out what makes this person fearful or greedy or excited or worried and react appropriately. The task is much more complicated with a crowd because the emotions of people within the crowd affect the emotions of others in the group. What will make them fearful or greedy one day won't bother them the next because the crowd dynamic will overwhelm their individual responses.

When you look at the current market, it is truly stunning how the emotions have shifted from complete despair and total pessimism back in early March to euphoria and high levels of optimism just seven weeks later. The emotions of the market today couldn't be any different than they were just a short while ago.

Our job at this point is to try to figure out whether the emotions of the crowd of investors will continue to stay so positive. Remember, though, that crowds don't tend to shift their thinking very quickly or easily. Once they are running in one direction, they don't stop and reverse course suddenly. That is why trying to pick market bottoms and tops is so difficult. It is very easy to say that the emotions of a crowd are extreme; it is much more difficult to try to time when an actual shift may occur. Market timers are usually too early and are run over before they eventually have better luck with the timing.

In this market right now, the crowd psychology is dominating. The buyers want in and are willing to chase a wide assortment of stocks higher. It is a bit of a frenzy, but frenzies can last, and when they do subside it doesn't mean we will go straight down.

The hard part for investors is balancing the extreme emotions and the likelihood that they persist against making prudent buys and keeping risks contained. While following the crowd is usually a great way to make money, doing so always becomes costly chaos at some point. We need to respect the crowd but maintain objectivity and be ready to stand aside when they start to shift.

If you want to make money, you have to be ready for more irrational exuberance but you also must be prepared to move quickly when it fizzles.

After a very strong finish last night, we have a little softness this morning. There isn't a whole lot of news out there. We're hearing talk once again about a deal between Microsoft (MSFT) and Yahoo! (YHOO) , and the bank stress tests are a focus in front of results that are due out on Thursday.

Good luck and go get 'em. -----------------------------Ülespoole avanevad:

Wells Fargo, deemed to need $13.7bn of capital by the US government’s stress test last week, claims to have the earning power to fill its capital deficit by November and apply to repay “as soon as practical” $25bn of government funds.

“We think we already have a lot of capital and, with our earnings, we are accumulating regulatory capital at a very high rate,” said Howard Atkins, chief financial officer.